Highest and Best Use

Highest
and Best use is the most profitable likely use to which a property can be
utilized relative to surrounding properties, laws, and environment. In
concept, a property could have a wide variety of uses including residential
such as single unit residential housing or multi-unit rentals, or commercial
buildings such as a gas station or stores, or green spaces such as a park. Urban and suburban properties tend to be put
to its highest and best use as residential spaces in a competitive market over
the long run. Since the owner, user, or potential buyer of property is
presumed to plan to put real estate to its highest and best use, it is a basis
for valuation.

Most residential properties are
being used at their highest and best use so long as the properties are in
residential areas. A house built on a property that is zoned for
single-family residential building only is the properties highest and best
use. A vacant lot in the same neighborhood is not the highest and best
use. Although a highly profitable business may seem like a higher and
better use of the property, the surrounding residential properties and zoning
requirements would prohibit that use. An example of a residential
property that is not the highest and best use would be a residential house that
is between a gas station and grocery store on a heavily traveled street.

Determining a property’s highest
and best use should be a part of every valuation. Consider the entire range of
legally possible uses for the property, existing zoning as well as possible
zoning changes. A zoning change may affect the highest and best use.